A lot of Real Estate Investors come to Capital Fundings looking for a Hard Money Loan to fund their next real estate investment. They are usually working with a Realtor or local wholesaler. Realtors and wholesalers are both great sources of MLS listed and off market properties to invest in. It is important to always properly vet the information provided by you trusted sources. For the Central Florida marketplace, the past several years had been a great opportunity for real estate investors because we had experienced huge price increases. The increases are to the point we are knocking on the doors of 2007 all-time high pricing. Now that we are almost back to these highs investors need to take precaution because they can’t be saved on a bad acquisition by letting the market appreciate during the renovation process. Over the past couple years an investor got the benefit of a 10-15 percent price appreciation from the time they purchased the investment until the renovation process in complete and ready to list. This appreciation cushion may be gone. I can’t predict where prices will be in a year, but I do know as we reach the highs just prior to the financial meltdown of 2008 we need to take precaution. Always beware of the person that says prices won’t go down. History has shown us that real estate markets do both, go Up and go DOWN. Prices will continue to do both. Below I have highlighted a couple tips you can educate yourself with to make sure you are buying the right deal. I always have felt that you make your money when you buy the deal so make sure you are buying the right deal.
After Repair Value
If you have a conversation with a licensed Real Estate Appraiser ask him how he determines comps. I did several years ago and they let me in on some important information. Keep in mind, these are the people that determine your value when you go to sell your renovated investment, so its vital to understand how they look at valuation. If your Realtor or Wholesaler is showing you comps in the neighborhood for a 1500 sft house that sold at $200 per square foot DO NOT let them use these comps for your 2500 sft house. An appraiser WILL NOT let you use a smaller comps price per square foot on a larger house to calculate their value. If the 2500 sft investment property you are being marketed says its worth $500,000 because of a $200 price per square foot value on a 1500 sft house it will not be used in the appraisal. The larger property must use similar sized houses to determine value. Also, an appraiser will not say a value is $500,000 if the top comp in the neighborhood is $350,000. Too many newer investors get sold on comps that are much smaller, don’t fall into that trap. Your Hard Money lender won’t accept the comparable when determining property valuations and loan amounts. The Real Estate Appraiser won’t give you credit when you go to sell the property.
Again, we may be entering a period of slowing price appreciation in the Central Florida Real Estate Market. It is vital that when you are doing your property analysis you understand your After Repairs Values (as stated above) and your Renovation costs. Building Materials prices and labor costs have increased substantially in the last five years as demand has increased. Have you tried to get your painter or carpenter on a job and noticed he’s two to three weeks out? It is because they are in demand, and they have realized this and demanded higher wages. Good for them, bad for the investor. If a property marketed to you and the repairs required are roof, kitchen, flooring, paint and bathrooms and the estimate is $25,000 you need to look deeper. These repairs are probably closer $40,000 now. Ask your Realtor and/or wholesaler for a renovation budget. It doesn’t have to be too detailed because that is your job, however, if you get a renovation list that says $2,000 for flooring, $2,0000 for interior and exterior paint you need to proceed with caution. If you are working with a good Private Money Lender you should be able to use them as a source of knowledge for repairs, vendors, and contractors. A strong Hard Money Lender should also be able to tell you if you are over improving a project or need to add some wow factor for the given area you are renovating in. Get a renovation budget for the Real Estate Investment and share it with your Hard Money Lender.
I won’t add much here, but be sure to know how much closing costs you’re the Buyer are responsible for. Some deals require Buyer pays all closing costs and some deals are being sold to you from a different source than the original seller (Double Close) and will double your closing costs. Ask for an estimate of closing costs from your Realtor or Wholesaler and factor that into your property analysis. If you are getting a Hard Money Loan ask your lender for an estimate of fees as they can be quote large depending on which Hard Money Lender you are using.
I don’t want to say questions everything, but question everything when you are doing your profit analysis on the next deal you are reviewing from your Realtor or Wholesaler because if you understanding all of your numbers including purchase price, closing costs, renovation costs and After Repair Value you will make your money when you buy the deal.
If Fixing and Flipping houses is a part time gig or your full time job please check out how Capital Fundings can help you achieve your goals. We offer great service, great rates and great terms AND our valued experience in the Central Florida Real Estate market. Apply online now at www.beta.capfundings.com